Apple contractors join legal battle vs. Qualcomm

A group of leading smartphone manufacturers are joining Apple Inc. in a legal battle against Qualcomm Inc., claiming that the chip maker charges excessive patent licenses and violates antitrust laws.

Taiwan-based contract manufacturers Compal Electronics Inc., Foxconn Technology Group, Pegatron Corp., and Wistron Corp. planned to file a lawsuit against Qualcomm late Tuesday night in federal district court in San Diego, according to Theodore J. Boutrous, an attorney at Gibson, Dunn & Crutcher LLP who is representing the four.

The companies, which assemble iPhones and iPads for Apple and other gadgets for other brands, are broadly challenging Qualcomm's licensing practices with them as illegal, according to a draft copy of their complaint.

Apple, which is covering legal fees associated with the manufacturers' defense, said it would file a separate motion Tuesday to consolidate the manufacturer's countersuit and its own suit against Qualcomm.

The planned moves come after a series of escalating legal blows between Apple and Qualcomm, which sells chips used in many smartphones and licenses technology used in nearly all of them.

Apple sued Qualcomm in January in the U.S. claiming unfair business practices, and the four contract manufacturers--which have the direct licensing agreements with Qualcomm that cover iPhones and iPads-- later stopped paying royalties on Apple's behalf.

Qualcomm sued the four in May over the nonpayment, setting up their planned countersuit Tuesday. Qualcomm has said that its licensing agreements with the contract manufacturers are independent of Apple. Qualcomm also has asked federal trade authorities to block imports of some iPhones and iPads as part of the broader dispute.

Qualcomm says its licensing practices are fair, and that Apple is merely trying to reduce its costs at a time of slowing iPhone shipments. At a conference in Aspen Monday, Qualcomm Chief Executive Steve Mollenkopf said he expects the dispute to be settled out of court, just as Qualcomm settled a similar patent dispute in 2008 with cellphone maker Nokia Corp.

The four companies' planned countersuit was to be filed just ahead of Qualcomm's quarterly financial report Wednesday afternoon. The legal battle forced Qualcomm in April to cut its profit forecast because it no longer expected patent-licensing revenue from the iPhone in the quarter. It is expected to report adjusted earnings of 81 cents per share, down from $1.16 per share a year ago, according to analysts surveyed by Thomson Reuters.

Qualcomm's patent licensing business on cellular technology accounted for roughly 80% of its pretax profit in 2016.

Complaints against Qualcomm have focused on its licensing practices for patents considered essential to cellular communication. Standards organizations require such patents be licensed widely at fair costs, but critics say Qualcomm has made sales of its chips conditional on the purchase of a patent license and refuses to make its essential technology available to rival chip makers. It's also been accused of charging high royalty rates unless smartphone makers agree to buy its chips.

Qualcomm has denied those allegations. It said it went out of its way to offer Apple alternative licensing terms, which Apple rejected.